Always read the fine print: Take these precautions before signing up for a store credit card

When Mykail James was 19 and working vacations at Victoria’s Secret, she got a store credit card with a $2,000 line of credit.

When her school break ended, she realized she could no longer afford the payments.

After losing a few, she paid off the card only to find that her credit score had dropped dramatically, affecting her ability to access other types of credit.

“I didn’t get a bank credit card until I was 21, just because of that fear,” said James, who is now a financial expert and creator of The Boujie Budgeter. “Because of its impact on my credit and it also made it harder for me to buy a car a few months later.”

With the holiday shopping season just around the corner, experts recommend caution when your favorite store offers you a credit card.

“If you’re offered one at the checkout counter, most of the time it makes sense to say no,” said Ted Rossman, senior industry analyst at Bankrate.

According to the Federal Reserve, outstanding credit card balances reached $1.14 trillion as of August 2024, meaning credit card debt is increasingly a concern for millions of Americans.

Bankrate found that the average store-only credit card has an average annual percentage rate of 30.45%, significantly higher than the April average of 20.78% for all credit cards.

The APR is how much interest you’ll be charged if you can’t pay off your balance in full each month.

Here are recommendations from experts when considering a store credit card:

Don’t immediately say yes to a store credit card

Store credit cards are usually offered at the cash register, and they offer shoppers a line of credit that encourages them to spend more on store products.

If not managed properly, these credit cards can negatively affect your credit history.

When you’re offered a store credit card, Bruce McClary of the National Foundation for Credit Counseling recommends not saying yes right away.

“Look for something with all the details in writing that you can take with you and review later,” McClary said.

Often, store credit cards come with a promotion such as 0% interest for one year or a discount on your purchase.

And while these may seem tempting, it’s best not to rush the decision while you’re at the counter.

Understand the details of the agreement

Before signing up for a store credit card, you should read the fine print, Rossman said, including how much interest will be charged if the cards are not paid in full and any late fees or penalties.

“A lot of times, these retail cards charge extremely high interest rates,” Rossman said.

Another thing to watch out for is “deferred interest”, which is when credit cards offer a promotion such as 0% for 12 months, but, if the customer doesn’t pay in full by the time the promotion expires, they are charged retroactively for all interest accrued during that time.

So your search

If you’re looking to buy a store credit card, McClary recommends doing some research on the retailer. Looking at online reviews can help you identify whether others have complaints about their store credit cards.

Additionally, McClary recommends asking yourself these questions:

– How often do you shop at the store?

– Will you use the card enough to take advantage of the rewards and discounts that come with it?

– Can you use another type of credit card?

– Are you able to pay the card in full at the end of the month?

– How many credit cards do you have? Is it worth adding another line of credit?

These questions will help you determine if a store credit card is right for you or if you’d be better off with a different type of credit card.

Best practices if you have a store credit card

If you decide a store credit card is a good option, it’s important to pay off your card in full each month, McClary said.

It’s also a good practice to spend only what you can afford to pay in one billing cycle, even if your credit line is higher.

“You want to keep yourself from getting into this unmanageable debt cycle,” McClary said.

One tip for building healthy habits is to set specific parameters when using your store credit card, James said.

For example, using your store credit card only for purchases over $50.

This way you can reduce the amount of money you spend on your credit card and it’s easier to keep track of your spending.

Store credit cards as a way to build credit history

Store credit cards were once known as a tool to build your credit history if you never had a credit card before.

That’s because retail credit cards have fewer requirements to be approved.

However, in recent years there has been an influx of other credit cards that offer help for people to build their credit history, McClary said.

If you’re looking to build your credit score, McClary recommends considering secured credit cards.

These cards are considered safe because the lender usually requires a deposit and the credit line is lower than other credit cards.

Once you’ve used secured credit cards and built your credit report, you can graduate to a traditional credit card.

Save Credit Cards Vs. Buy now, pay later

Since Buy Now Pay Later services became available, retail stores have offered them to customers along with store credit cards.

It is important to understand the differences.

Store credit cards work like traditional credit cards.

By filling out an application, you request a soft inquiry on your credit report, and if you decide to get a credit card, that line of credit will be reflected in your credit score.

Buy Now Pay Later services do not appear on your credit report and are usually tied to a specific purchase and are not a revolving line of credit.

“Companies like Affirm, Afterpay and Klarna have reduced the market share of store credit cards because they fill a similar type of niche,” Rossman said.

With both store credit cards and BNPL services, customers should proceed with caution to avoid getting caught up in overspending that can lead to huge amounts of debt, he added.